Question

10. The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys debt securities, intending to profit from short-term differences in price and maintaining them in an active trading portfolio. Ornament's fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2017..

Mar. 31 Acquired 8% Distribution Transformers Corporation bonds costing $530,000 at face value.

Sep 1 Acquired $1,290,000 of American Instruments' 10% bonds at face value

Sep 30 Received semiannual interest payment on the Distribution Transformers bonds

Oct 2 Sold the Distribution Transformers bonds for $565,000

Nov. 1 Purchased $2,050,000 of M&D Corporation 6% bonds at face value

Dec. 31 Recorded any necessary adjusting entry(s) relating to the investments. The market prices of the investments are: American Instruments bonds $1,243,000 M&D Corporation bonds $2,123,000 (Hint: Interest must be accrued)

Required:

1. Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end.

2. Indicate any amounts that Ornamental Insulation would report in its 2018 income statement, 2018 statement of comprehensive income, and 12/31/2018 balance sheet as a result of these investments.

Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end.

Date	General Journal	Debit	Credit
March 31, 2018

Answer 1

1) Journal Entries ;-
Date	Particulars	Debit($)	Credit($)
31-Mar	Investment in Corporation DT shares	530000
	Cash A/c		530000
Sep. 1	Investment in American Instruments Bonds	1290000
	Cash		1290000
Oct. 2	Cash	565000
	Investment in Corporation DT Share		530000
	Gain on Sale of Investments ($565000-$530000)		35000
Nov. 1	Investment in M&D Crop. Bonds	2050000
	Cash		2050000
Dec.31	Investment Revenue Receivable	34400
	Investment Revenue A/c ($1290000*8%*(4/12))		34400
Dec. 31	Fair Value Adjustment A/c Dr. (From working Note)	26000
	Net Unrealized Holding Gains and Losses		26000
	Journal entries for Dividend :-
Date	Particulars	Debit($)	Credit($)
	Cash A/c Dr. ($530000*8%*(3/12))	10600
	To Investment Income A/c		10600
Working Note :-
	Net Unrealized holding gain/(loss) as on Dec. 31, 2018.
Security	(Fair Value - Amortized Cost)	Fair Value Adjustment
Corp. M&D Bonds	($2123000-$2050000)	$73,000
American Instruments Bonds	($1243000-$1290000)	($47,000)
Total	($3366000-$3440000)	$26,000
Existing Balance in Fair Value Adjustment		-
Increase/(Decrease) needed in fair value adjustment		$26,000
2) Income Statement :-
Particulars	Amount($)
Investment Revenue :-
Dividend Income	10600
Interest Income	34400
Gain on sale of Investments	35000
Total Operating Income	80000
Statement of Comprehensive Income :-
Statement of Comprehensive Income	Amount($)
Other Comprehensive Income/(Loss) Items:-
Net Unrealized holding gains and losses on investments	26000
Balance Sheet ;-
Particulars	Amount($)	Amount($)
Current Assets :-
Investment Revenue Receivable		34400
Securities Available for sale	3440000
Add : Fair Value Adjustment	26000	3466000
Shareholders Equity :-
Accumulated other comprehensive Income
Net Unrealized Holding gains and Losses		26000